DWS has unveiled two new fixed income ETFs in Europe providing socially responsible exposure to USD and EUR high yield corporate bond markets.
DWS has introduced two high yield corporate bond ETFs that cater to ESG-conscious investors.
The Xtrackers ESG USD High Yield Corporate Bond UCITS ETF (XZHY GY) has been listed on Deutsche Börse Xetra in euros, while the Xtrackers ESG EUR High Yield Corporate Bond UCITS ETF is currently available on both Xetra (XZHE GY) and London Stock Exchange (XZHE LN) in euros.
The funds are linked to Bloomberg MSCI High Yield Sustainable and SRI Indices which are constructed from Bloomberg‘s flagship benchmarks for high yield corporate bond exposure.
The initial universes of eligible bonds consist of fixed-rate and zero-coupon debt securities issued by corporate entities worldwide that have sub-investment grade credit ratings. Issues must have at least one year remaining to maturity and a minimum amount outstanding of $500 million or €500m.
Indexing and ESG giant MSCI provides the socially responsible investment methodology which comprises two steps.
In the first step, issuers embroiled in severe ESG-related controversies and companies with operations linked to alcohol, gambling, tobacco, weapons, pornography, and genetically modified organisms are screened out.
In the second step, the remaining issuers are assigned ESG ratings based on the most relevant ESG factors by industry. MSCI‘s ESG rating schedule runs on a seven-point scale (CCC; B; BB; BBB; A; AA; and AAA) with firms required to possess a rating of at least BB (lower average) to make it into the index.
The chosen securities are initially weighted by the market value of debt outstanding; however, issuers with the lowest eligible ESG rating of BB have their weight reduced by half. The weight of any single issuer in the index is capped at 3%. Rebalancing occurs on a monthly basis.
Each ETF comes with a gross expense ratio of 0.25%, although DWS has reduced the fees for each fund to 0.15% for approximately the first year of operation.